Warren Buffett Returns, Berkshire Hathaway Performance & IPO Winners
Warren Buffett's returns at Berkshire Hathaway came to 1,027x after money printing over 60 years. We compare them with Walmart, Nike and other IPO winners.
Topic
Survivorship Bias in Stock Picking
Survivorship bias is the reason the IPO tables in Part IV look easier to beat than they really were.
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Walmart, Home Depot, McDonald’s and Nike all returned between 724x and 1,024x after adjusting for M2, but they are the handful that survived, and the list leaves out the thousands of retailers, restaurant chains and clothing brands that went bankrupt over the same decades.
The research we drew on suggests about 30-35% of IPOs go to zero or are delisted within 10 to 20 years, another 40% lag the S&P 500, and only around 10-15% beat both the index and the money supply. That is why we ended up seeing Berkshire Hathaway as a way round the problem rather than as just another winner.
- 30-35% IPOs that go to zero or delist Within 10 to 20 years, from the research cited in Part IV.
- 10-15% IPOs that beat the index and M2 The small group that cleared both bars over the long run.
- ~5% a year Average retail investor Below the 6.56% hurdle, from the Dalbar data in Part IV.
Articles on Survivorship Bias
1 article from our research on this topic.
Plain-English definitions
Key terms for survivorship bias
- Survivorship bias
- Judging a strategy by the winners that are still around while forgetting the companies that failed or were delisted along the way.
- IPO
- An initial public offering, the point when a company first lists its shares on a stock exchange.
- CAGR
- Compound annual growth rate: the steady yearly rate that would turn the starting value into the ending value over the period.
- M2-adjusted value 1.0 = break-even
- An asset’s growth divided by M2 growth over the same years. Above 1.0 it gained share of the money pool, below 1.0 it lost share.
FAQ
Questions about survivorship bias
Answers drawn from the figures in our research. Educational only, not financial advice.
What is survivorship bias in investing?
It is judging a strategy only by the companies still standing. If you look at a list of today’s giants and ask how they did since listing, the answer will always look spectacular, because the failures have dropped off the list. In Part IV that is exactly the trap with buying IPOs: the winners we tabulated are real, but the odds of picking one at the time were low.
How many IPOs actually beat the market over the long run?
Around 10-15% beat both the S&P 500 and the 6.56% growth in M2, according to the long-run IPO research from Jay Ritter and colleagues that we cite. About 30-35% go to zero or are delisted within 10 to 20 years and another 40% trail the index. To win that way, an investor had to find one of the few, then hold it through several recessions and crashes without selling after the first double, which we think very few people manage without hindsight.
Sources